Cruise Ship Firms Sail To Consolidation

NEW YORK — Laboring under decreasing customer demand and increasing competition, the cruise-ship industry is poised to be transformed by a series of strategic consolidations.

Securities analysts predict that more and more cruise ship companies will be bought by cruise industry giants or succumb to the pressures of competing with better-financed companies.

Meanwhile, customer counts are dropping. While that isn't good news for the cruise companies, travelers are able to get bargain rates.

The consolidation momentum has been building for the past few years, but has come to the forefront in recent weeks as debt has sunk one cruise ship company and forced another to hoist a "For Sale" sign.

Kloster, which operates nine ships under the Norwegian Cruise Line and Royal Cruise Line names, is laden with debt and was unable to make scheduled junk bond interest payments.

Another company struggling with debt, Regency Cruises Inc., suffered the embarrassment of having a ship confiscated by federal marshals on behalf of creditors, while passengers were preparing to board for a two-day cruise. Regency has since announced it has temporarily ceased operations and canceled future voyages.

"We have the emergence of the traditional haves and have-nots, only the gap is widening to very meaningful differences. The haves clearly are Carnival, Royal Caribbean Cruise Line and Princess Cruises," said David Leibowitz, an analyst with Burnham Securities.

Leibowitz said the rest of the industry--the have-nots--"do not have the financial capability to produce the megaships that are all the rage, and without the capital resources to compete, the gap only widens."

Indeed, Carnival is building megaships that cost $275 million to $400 million, which according to the cruise industry economics generates a cash flow that is three to five times more than smaller ships.